Monday, February 13, 2012

People Power

Perhaps it was only a coincidence that the Susan G. Komen for the Cure/Planned Parenthood Federation of America funding controversy occurred the same week that Facebook filed the paperwork for its initial public offering. However, no matter how fortuitous the timing of these events, Facebook CEO Mark Zuckerberg could not have planned a better example to illustrate Facebook’s mission and his vision of the power of social media.

While the media seemed to focus largely on the issue of how wealthy the IPO might make those with equity in Facebook, almost completely overlooked was a letter to potential investors that Mr. Zuckerberg tucked in the IPO documents. In this letter Mr. Zuckerberg states that Facebook's mission is “to make the world more open and connected,” and he outlines how Facebook approaches this mission so that “everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do.”

Mr. Zuckerberg’s letter is organized around the three goals Facebook strives to achieve; (1) to strengthen how people relate to each other, (2) to improve how people connect to businesses and the economy, and (3) to change how people relate to their governments and social institutions. As to the latter, Mr. Zuckerberg writes that: “By giving people the power to share, we are starting to see people make their voices heard on a different scale from what has historically been possible. Over time, we expect [our institutions] will become more responsive to issues and concerns raised directly by all [the] people rather than through intermediaries controlled by a select few.”

What Mr. Zuckerberg refers to has been called “democratization and disintermediation” - the public's unprecedented access to information coupled with the decline of the traditional intermediaries between businesses, government, and the public. Social media fuels democratization and disintermediation, helping people to gather, share information, and directly affect institutional decisions. Prior to the Komen/Planned Parenthood controversy, the power of social media to lead to changes in institutional decisions was displayed in three other instances during the past eight months, involving Netflix, Bank of America, and Verizon Wireless.

Netflix – In July, 2011, Netflix announced that it would begin charging separately, at $8.00 per month, for its DVD delivery and streaming services. Prior to this pricing change, subscribers who wanted only DVD delivery paid $8.00 per month, while those who wanted DVD delivery and streaming paid $10.00 per month. The pricing change meant that DVD delivery and streaming would now cost $16.00 per month, a 60 % increase. Although Netflix projected that some of its 25 million subscribers would cancel due to the price changes, the cancellation rate exceeded projections, and Netflix informed investors that it expected to lose one million subscribers by September 30th. Many of the departing subscribers left blistering comments on Netflix’s website and Facebook page. Netflix then compounded the problem by announcing on September 17th that it was going to spin-off its DVD delivery service into a new company called Qwikster. The effect of this decision was that subscribers who wanted both the streaming service and DVD delivery would have to visit two websites, manage two accounts, and pay two monthly bills. Once again, tens of thousands subscribers left comments denouncing the breakup plan on Netflix’s website and Facebook page. Finally, on October 9th, after losing millions of subscribers and seeing its stock lose almost two-thirds of its value, Netflix surrendered, announcing that it was keeping its new pricing structure but abandoning the Qwikster plan. Netflix e-mailed all of its former subscribers about its decision, and its CEO, Reed Hastings, went on YouTube to apologize to its current and former subscribers.

Bank of America – In October, 2011, Bank of America, announced that beginning in January, 2012, it would charge its account holders a $5.00 per month fee for using a debit card to make purchases. Again the negative reaction was swift, as BofA customers went to the internet to criticize the charge. One BofA customer started an online petition at that quickly attracted 300,000 signatures of support. By the end October, when it became clear that the other major banks, which had also considered adding a monthly fee for credit card use, were not going forward, BofA dropped its plan.

Verizon Wireless – On December 29th Verizon Wireless announced that it would begin charging its customers a $2.00 “convenience fee” if they made one-time payments on the company’s website using a debit or credit card. The internet and social media criticism of the planned fee was immediate and massive. Online petitions were circulated, and the uproar caught the attention of the FCC, which announced that it was undertaking an investigation of Verizon Wireless. In less than a day Verizon Wireless announced that it was scrapping the fee, “based on [customers] input.”

Susan G. Komen for the Cure - This brings us to the aforementioned Susan G. Komen for the Cure (“SGK”)/Planned Parenthood funding controversy. On Tuesday, January 31, 2012, SGK announced that it was cutting funding to Planned Parenthood for breast cancer exams and other breast-health programs because of SGK’s new rule that prohibited grants to organizations under government investigation. (In September 2011 the House Oversight and Investigations Subcommittee initiated an investigation into whether Planned Parenthood used federal funds for abortion services in violation of the Hyde Amendment.)

SGK’s decision sparked some praise but even more outrage. By Wednesday, February 1, 2012, fewer than twenty-four hours after the decision was announced, there were more than 3,000 comments to a post on SGK’s Facebook page explaining its decision to cut funding, and opponents far outnumbered supporters. At least two online petitions, one from Credo Action and the other from, were established to pressure SGK to reverse its decision. Planned Parenthood sent out mass emails and placed telephone calls requesting that supporters take action against the decision. In addition, it launched a Breast Health Emergency Fund to ensure continued funding to Planned Parenthood affiliates that would lose their SGK grants, and raised almost three million dollars from more than 10,000 donors. Among the donors was New York Mayor Michael R. Bloomberg, who pledged one dollar for every new one dollar donation made to Planned Parenthood, up to $250,000. Another $250,000 was received from the Amy and Lee Fikes family foundation, which issued a statement encouraging “others to join us in replacing the funds lost, so that no woman’s health is imperiled by Komen’s unfortunate decision.”

The next day, Thursday, February 2, 2012, SGK added to its problems when it offered a different explanation for its funding decision. In a conference call with the media, SGK founder and Chief Executive Nancy G. Brinker said the decision was due to policy changes intended to improve how grantees are selected. Ms. Brinker explained that although women received clinical breast exams at Planned Parenthood clinics, patients are referred to other medical facilities for mammograms, biopsies, and cancer treatment. Ms. Brinker referred to this as “pass-through” services: “We look at the quality of the grants. We don’t like to do pass-through grants anymore.” SGK’s shifting explanation added fuel to the fire of those who claimed that the initial decision was politically motivated to mollify SGK funders who were upset with SGK’s affiliation with Planned Parenthood.

Ms. Brinker’s explanation failed to quell the uproar, and on Friday, February 3, 2012, SGK issued a statement rescinding its decision.

The New Reality - As noted by Mr. Zuckerberg in his letter to investors: “By giving people the power to share, we are starting to see people make their voices heard on a different scale from what has historically been possible. These voices will increase in number and volume. They cannot be ignored.” Businesses must take into account this new reality in their decision-making processes. Currently, most companies might consult their chief legal officer or chief financial officer before making a decision, and afterwards task their communications personnel with disseminating the decision to the press, employees, investors, and other stakeholders. This decision-making model is on its way to obsolescence. The new reality requires a company to not only consider the legal and financial implications, but to also consider the public relations implications of an institutional decision. Democratization and disintermediation requires that companies be transparent in their decision-making, and think strategically about how decisions are communicated. In the new reality, the chief communications officer must be as important as the chief legal and financial officers in the decision-making process.